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Revenue is the total value of sales made by a company through selling its products or services in a given period.
It’s also known as a company’s top line as it is the first element on the company’s reported income statement.
Revenues are calculated by this equation.
Sales revenue = Product Price * Number of products sold
Revenues are recorded on the company’s financials when it delivers the goods or services to their customers, not when the customers pay the amount. In other words, if a customer buys the company’s products or services on credit, the transaction would be considered as revenue, even if the company hasn’t received the cash yet.
Lets say a company manufactures and sells electric cars for EGP 500,000 per car. During the month, if it sells 2,000 cars at that fixed price then its total revenue would be EGP 1B.
Types of revenue
There are two types of revenues: operating revenue and non-operating revenue.
Operating revenues are the total value of sales from the company’s core business. For example, an automotive company operating revenue is the total value of the vehicles sold. Companies should be more dependent on their operating revenues as it’s the most recurring & easily predicted type of all revenues.
Non-operating revenues are the gains the company made through secondary activities that may be not related to their core business. For example, Tesla made a USD 1.5B investment in bitcoin. Any revenues generated from this investment is considered a non-operating revenue. Companies usually don’t depend on this type of revenue as it’s non-recurring and unpredictable.
There might be other less frequent sources of revenue, which is known as gains. Gains are the total value the company received from selling one or more of its fixed assets. For example, if a company sells one of its buildings , the sale proceeds are considered a gain.
Difference between Revenues and Net Income
Both revenue and net income indicate the financial health of a company, however they are of different measures.
As we mentioned, revenue is known as the top line as it’s the first element on the company’s income statement. Net income, also known as bottom line, is calculated by subtracting all the business costs, such as cost of goods sold, selling & marketing costs, debt interest, taxes, etc.
Revenues indicate the business volume and the company’s ability to generate sales. Net income indicates the company’s operational efficiency in managing its investments & spendings.